Civil grand jury: Risky investments can cause pension peril

The city needs to rethink the way it invests its $15 billion pension fund or risk costing taxpayers even more, according to a new report from the San Francisco civil grand jury.

According to a statement by the jury, the San Francisco Employees’ Retirement System’s use of a high-risk investment policy for the past 28 years “creates the possibility of even greater future losses, losses which the City will have to pay for, but which the City can ill-afford to pay.”

The pension fund, which draws upon employee contributions, city dollars, and returns on investments, dropped from $17.4 billion in 2007 to a low of $11.1 billion in 2009. The city contributed about $433 million from its $6.6 billion budget last year to ensure retirement benefits for its 26,000 workers, and the jury said the city’s tab is expected to increase even further in the future.

“San Francisco can’t really afford to put in so much money to make up for the shortfalls that are happening,” said Mario Choi, the jury foreman.

The report criticized the system for planning to earn 7.5 percent returns on its investments in the next 20 years, despite only averaging 4.2 percent returns over the past five years.

Choi said studies have shown that a more conservative approach to investments can lead to bigger returns over time, and urged the system to study alternative approaches.

“It’s like that saying,” he said. “Those who fail to learn from the past are doomed to repeat it in the future.”